Various possibilities here:1. The S&P crashes to about 200, then dividends might be significantly higher than treasury bonds provided the company is still in business AND is making a profit. Kind of unlikely.2. After the recent debt orgy it will get increasingly difficult to find suckers to finance our trade and budget deficit. Treasury actions will fail and government is forced to offer substantially higher interest rates to attract attention. Still not that likely either since government owns the printing presses and will just print the money it needs. That worked well for Argentina and Zimbabwe, why not here?

Investors will increasingly demand higher dividend returns to adjust for risk and lower EPS growth, i.e. more of the expected gain from holding stocks will come from holding stocks for their current return (dividend) than from capital gains.

Brant,I saw someone comment on another blog that instead of direct confiscation of pension assets, the govt could require that a percentage of 401 balances be held in govt securities in order to maintain preferential tax status and over time that percentage could be increased. That's one possible scenario and more likely than a daylight raid on pension accounts.

But as the Chinese will need to use their own money to support their own economy, as probably also Russia, there will be so much less money buying US treasuries. With money becoming scarce globally, the price of money will rise, i.e. long yields up up and away...

So dividends higher than long yields? Cannot see going that way in near future.

If my logic false, would really love to be reassured that this actually is a tunnel, and not just a very long and deep cave.

Money prices (interest rates) are not the same for everyone. And many people cannot get ANY money at all (can't borrow). So, we can have a very long period during which nominal govt. rates are very low (say 2%) but few others can borrow and/or raise equity capital.

Treasuries at 2% and yield at 6% is my estimate for the bottom. Current SPX yield is around 3%. So, SPX will have to fall by another 50% to 450 or so, which is my estimate for bear market bottom by another measure. In a study of previous bubbles, famous investment manager Jeremy Grantham showed that all bubbles deflate to whether it started. The current stock market mania started in 1995, when baby boomers started to invest in the stock market for the long run.

"Before this so-called "crisis" is over dividend yields on the S&P 500 will be significantly higher than AAA/Treasury long bond yields. As in 2-3x higher..."

LOL, LOL, LMAO, ROFL, LOL... You are hysterical.

looks like you don't understand the premise of your blog. As businesses get crunched in the recession, they will need to CUT dividends to conserve cash. Meantime, as the government is forced to do more bailing out and dollar hegemony comes to an end, longer end yields will rise.

You've got it backwards, kid.. but hey, thanks for the Saturday morning laugh.

I read you up here in Canada,great blog,and i think your blogger name has nailed it,hell as ious could not be more fitting.The CDN markets (TSX) have taken an absolute pounding,and i believe its gonna get a lot worse.

as far as hysterical goes...well hes hysterical,i guess thats what loosing 60% of your net worth will do to one.

ps..i drew all my stock holdings out in may/07 a little early,but at least its safe.

Hell, I got your point, and I agree that the government-corporate-interest rate differential will go much wider in the next year.

I also see your point in the dividend being percent of the market price, thus as the market price drops even modest dividend will be more in percentage terms. (And even as companies need to save, they also need to keep on paying good return for investors money, or they won't get any.)

But my view of the world is that China won't be lending like it used to - maybe not at all - Europe needs its own monies and so will Russia. Oil countries have less as the price of oil will keep sinking due the demand being less. Thus while we will see the short end of the government curve approach to zero, I fear that even governments will very soon be paying dearly for longer money.

And as the state probably will increasingly keep on socialising banks, and soon other industries (cars?), they will need more money than ever before.

I'm wkwillis. Livejournal does not seem to work on suddendebt when I am using my laptop (xp and ie).

I am going to go with default.

The US government is being held up by overseas investors. They are going to stop propping us up some day.When they do the US government will have a choice of defaulting on the (mostly defence and security) civil service pensions, or defaulting on the social security pensions, or inflation/defaulting on the national debt, or raising taxes on ownership rich people.They can't raise taxes on poor people. They don't have any money. They can't raise taxes on earnership rich people because if we have European tax rates we will have European work hours and we won't get any more taxes despite higher tax rates.

About Me

I was educated as a chemical engineer but spent almost my entire career in finance, particularly in money, FX and bond markets. The name stands for Hell-as-IOUs and the picture points to Quixotic endeavors.